Spread betting disasters: Spreadex and the Icarus of the London property market
Written by Will Peters Friday, 30 March 2012 13:45
In our latest instalment of 'spread betting disasters' we look at the case of 'property's fading Rock star' Paul Kemsley. (Other Spread Betting Disasters: A big miss on cricket spread betting)
Kemsley made it big in the property business, and even appeared on The Apprentice; the 44 year old is believed to have gathered a fortune of some 188m GBP since going into business in 1995.
He once boasted, "There are no limits. If I want it, I will buy it."
Clearly, Kemsley once thought very highly of himself and ultimately failed to draw any comparisons between himself and Icarus, the mythical Greek chap who flew too close to the sun.
Things all went wrong for Kemsley in 2008 when his property investment firm Rock went into administration, as did many such companies in the wake of the bursting of the property bubble.
So he got it wrong on property, and we suspect he failed to grasp the extent of trouble the world was in at the time, adopting the business mantra that prices only ever rise.
His deluded outlook on the global economy at the time became evident when Kemsley decide to place a, "series of bets, each worth hundreds of thousands of pounds, that Lehman Brothers would make a recovery," reports The Times.
Kemsley is now embroiled in a legal dispute with Spreadex, and it has emerged that retail tycoon Sir Philip Green volunteered to lend his friend £2m to meet a margin call.
Spreadex argue that an agreement was in put place that if Kemsley's losses exceeded £3.6m, he would pay £2m as "margin security" within 24 hours to cover them.
By October 2008, Kemsley's debt easily exceeded that figure and Spreadex claims it told Kemsley that his positions would be closed.
When a spread betting firm receives a bet from a spread betting client, it takes out the same bet with a counterparty broker to cover itself in the event of a big payout.
"Spreadex claims it has already paid out on that counterparty bet on Kemsley's losses, which it believes indicates its financial strength," says the Guardian.
This in itself is interesting - and actually bathes Spreadex in a good light when we consider the recent Worldspreads debacle.
The lesson for spread bettors? Well, it is actually a simple one: Asset prices just don't keep rising, be it property or your spread bet.
The simple rule to getting spread betting right is ensuring your loss management strategies are unambiguously prioritised. Cut your losses!
Kemsley was made bankrupt by the High Court this week.
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